Change Starts To Click At Kodak As Old Face Adopts New Profile

NEW YORK — After three turbulent years of acquisitions, restructuring and diversification, Eastman Kodak Co. has entered the most painful phase in a sweeping corporate change of face.

Kodak`s difficulties were reflected Tuesday when it announced plans to reduce its work force by 10 percent this year and cut its operating budget 5 percent. In all, the company said it would eliminate 12,900 jobs.

The cutbacks underscore a radical shift in corporate strategy. Kodak, criticized on Wall Street for being too slow moving and too paternalistic with its employees, has overhauled its management style and diversified into key new areas of biotechnology, office equipment and other fields through more than 20 acquisitions and joint ventures.

In the meantime, the company is struggling with foreign competition, reduced earnings and a major patent infringement lawsuit.

``Change carries risk,`` said Eugene Glazer, an analyst with Dean Witter Reynolds Inc. He added that many analysts had expected change at Kodak but had been surprised by its pace and scope.

Nonetheless, Glazer said, ``If they succeed, the Kodak of the 1990s will look very good.``

In the view of some analysts, the benefits may come even sooner. ``Kodak is going through a great break with the past,`` said Charles Ryan of Merrill Lynch, Pierce, Fenner & Smith Inc. ``The changes are positive, and the bottom (line) will reflect it in 1986 and 1987.``

In interviews last week at Kodak`s Rochester headquarters, senior executives said the changes were coming none too soon. As Japanese companies carve deeply into the worldwide camera market, and as Kodak`s technological lead is on the wane in some photographic goods, the company`s pride and profits have both been hurt.

The company`s course is being charted largely by Colby H. Chandler, who was named chairman in 1983. A 61-year-old engineer who presents the air of a college professor, Chandler doodles incessantly on a scratch pad to illustrate his points about the company`s future.

``Never before did Kodak have to look outside for growth,`` Chandler said. But now, while photographic goods will remain the largest part of Kodak, its other businesses ``will grow more rapidly.`` The photo sector accounts for more than half of sales.

One of Kodak`s problems in the photography business is the loss of its instant camera products and technology. On Jan. 9, as part of a patent infringement ruling won by Polaroid Corp., Kodak stopped selling instant cameras and film for the equipment.

Kodak said the instant cameras and film had accounted for less than 3 percent of its sales. But it had been marketing them since 1978 and had sold more than 16 million instant cameras.

Kodak said it would idle $230 million worth of plant and equipment that had been used to make the instant cameras and film. And the patent case, which Kodak has appealed, could cause the company more problems. In continuing litigation that may stretch out for more than a year, Polaroid is expected to ask for monetary damages in the $1 billion range.

A more immediate result of the patent dispute, meanwhile, will be sharply reduced earnings in an already troubled year. With its foreign sales hurt by the strong dollar early in 1985, and with weak sales in its chemical division, Kodak said its net income for the first nine months dropped 26.8 percent, to $526.5 million, or $2.31 a share, from $719.4 million, or $2.93 a share.

Nine-month revenues were $7.81 billion, almost unchanged from $7.85 billion.

Kodak has not reported its fourth-quarter results, but said the costs of idling the instant camera plant and equipment would have a ``severe impact.`` Still, only two weeks after it was forced to withdraw from instant cameras, Kodak said it was reentering the worldwide market for 35-millimeter cameras after an absence of 15 years. On Jan. 21, it introduced a line of the cameras, a new color film and a line of mini-labs--machines that can process film in 24 minutes.

The new products cast the company in the unfamiliar role of playing catch-up in a major photographic market. More than 800,000 mini-labs have been sold in this country by French and Japanese companies, and are being used in a growing number of shopping centers and department stores for fast processing. ``We won`t drive the business,`` said Kay R. Whitmore, Kodak`s president. ``But we need to be there with a camera, and it will be profitable.``

Indeed, analysts say the timing of Kodak`s move may prove astute. By allowing the Japanese to build a major market for the automatic cameras, which carry razor-thin profit margins, Kodak has been able to concentrate on marketing its much more profitable 35 mm. film and photographic paper, the analysts say.

Kodak`s film accounts for more than 75 percent of the U.S. market. Nonetheless, the company has been fighting fierce competition on that front from the Fuji Photo Film Co., a Japanese firm.